FocusBrazil's Braskem may see 2nd-half boost after net losses

20 August 2012 23:12  [Source: ICIS news]

A Braskem signBy Al Greenwood

HOUSTON (ICIS)--The outlook for Braskem could brighten in the second half of the year, after the company reported its third net loss in four quarters as a result of a slowdown in the Brazilian economy.

Braskem reported a second-quarter net loss of reais (R) 1.03bn ($510m, €413m), compared with a net income of R420m for the same time last year.

Braskem attributed much of the loss to the stronger US dollar, which appreciated 11% in the second quarter versus the Brazilian real.

The stronger dollar caused Braskem to report a R2.11bn expense for the what the company called its net financial result, which takes currency fluctuations into account.

But, even without the weaker real, the second quarter was difficult for Braskem.

Second-quarter gross profit was R860m, down 30.1% from R1.23bn reported for the same time last year.

Gross profit fell because costs outpaced sales. Volumes fell because growth has slowed substantially in Brazil.

GDP growth slowed from 7.5% in 2010 to what will likely be 2.5% for this year, according to the International Monetary Fund (IMF) in its July report.

Based on what many analysts said, growth could be in the low 2% range for this year, said Raul Arias, senior consultant and manager for Latin America, energy and chemicals consulting at Nexant.

Brazil is contending with a slowdown in its top two export markets, the EU and China, Braskem said.

But those two countries are not the only ones contributing to the slowdown in Brazil, said Jaime Ortiz, vice president of the Texas International Educational Consortium.

The consortium is a non-profit organisation that works with public universities around Texas to promote them around the world.

Brazilian exports to US and Argentina also fell, said Ortiz, who has taught and consulted in economic and business matters with a focus on Latin America and the Caribbean.

In April, the IMF warned that slower growth around the world could lower commodity prices and tighten foreign credit, adding more pressure to the Brazilian economy.

At home, Brazilian consumers could be overwhelmed with debt, given the rapid growth in consumer credit and the country's high interest rates, the IMF said.

Arias added that internal demand has lost momentum. Destocking and expectations of lower prices have not helped this trend.

As such, the second quarter was among a string of net losses for Braskem. The company also reported losses in the third and fourth quarters of 2011.

On the other hand, Brazil has already taken steps to boost its economy.

The Brazilian Central Bank has lowered interest rates to 8.00% from 12.25% in August 2011.

The interest-rate drops take 9-12 months to take effect, so they should start helping Brazil's economy by the second half of this year, the IMF said.

More help is on the way.

On 15 August, the Brazilian government announced a 25-year logistics package worth a total of R133bn, intended to build 7,500 km (4,700 miles) of highway and 10,000 km of railroad.

Out of the total, R79.5bn will be invested in the first five years of the programme.

The government plans to announce a similar programme for ports and airports in the upcoming weeks.

Proposals that could take effect in the second half of 2012 would reduce payroll charges for some manufacturers and lower interest rates for industrial investments, Braskem said.

More stimulus could come from the Chemical Industry Competitiveness Council, which intends to increase chemical capacity and develop renewable chemicals, Braskem said.

Braskem estimates that the council's proposals could encourage companies to make R80bn in investments.

Looking forward, the upcoming 2014 FIFA World Cup tournament should provide a big boost to the Brazilian economy, Braskem said.

Ortiz said a combination of the stimulus measures and the benefits from the World Cup and the 2016 Olympic Games should all help the Brazilian economy.

In addition, despite its slowing economy, Brazil has maintained a budget surplus, Ortiz said. It has also maintained its social programmes, which has helped so much of the population escape from poverty.

Braskem itself expects that a recovery could start in the third quarter of this year.

By the fourth quarter, the IMF expects the Brazilian economy should reach growth rates of about 4%.

($1 = R2.02)
($1 = €0.81)

By: Al Greenwood
+1 713 525 2645

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